SPY Trends and Influencers October 17, 2020

• Posted by Greg Harmon
• on October 17th, 2020

Last week’s review of the macro market indicators saw heading into the October options expiration, equity markets were looking strong again. Elsewhere looked for Gold ($GLD) to continue its short term move higher while Crude Oil ($USL) consolidated in a broad range. The US Dollar Index ($DXY) continued to move lower while US Treasuries ($TLT) pulled back as well. The Shanghai Composite ($ASHR) looked to continue in consolidation over support while Emerging Markets ($EEM) marched to the upside.

The Volatility Index ($VXX) looked to drift lower making the path easier for equity markets to the upside. Their charts looked strong on both timeframes. On the shorter timeframe both the $QQQ and $SPY were breaking above the consolidation ranges following the September swoon, while the $IWM was leading the pack and ready to finally attack the February high. On the longer timeframe the SPY and QQQ were closing in on their all-time highs while the IWM might join them soon.

The week played out with Gold breaking ranks and dropping back while Crude Oil continued the consolidated but saw late strength try to move it higher Friday. The US Dollar found support and bounced slightly while Treasuries also found support and reversed back higher. The Shanghai Composite jumped over the September high before consolidating while Emerging Markets fell back to retest the break out area before bouncing.

Volatility held in a tight range, but still refusing to hold below the February gap up. Equities responded with a gap up early and then gave the gains back the next 3 days before a move back higher Friday. This left the SPY and QQQ stalled just under their all-time highs. Although the IWM did not gap up Monday it was the strongest performer intra-week refusing yield any ground. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY had cleared the September mid-month bounce and was moving higher as it came into the week. It gapped higher Monday and then fell back Tuesday and Wednesday to close the gap. A gap down open Thursday took it down to a second gap and it was bought all day, moving higher and filling the drop. Friday saw an early move higher crap out and pullback. This had it end the week slightly higher and possibly breaking a short term bull flag. The daily chart shows the knock back at the upper of the Bollinger Bands® with the RSI holding in the bullish zone and flat. The MACD is also flattening out and positive.

On the weekly chart upper and lower shadows at the prior high will lead to confusion. This was the second highest weekly close ever though and higher than last week. The RSI is trending back higher with the MACD turning up and avoiding a cross down. The Bollinger Bands are also opening higher. There is resistance at 348.50 and 353 then 357.70 and a Measured Move above to 375. Support lower comes at 346 and 344.70 then 342.20 and 341 before 339.30. Uptrend.

SPY Weekly, $SPY

With the October options expiration in the books, equity markets showed they had lost a bit of energy as they approach the highs. Elsewhere look for Gold to continue to consolidate in the uptrend while Crude Oil consolidates in a broad range. The US Dollar Index continues in a short term move to the upside while US Treasuries consolidate at support. The Shanghai Composite looks to consolidate as well while Emerging Markets move higher.

The Volatility Index looks to remain stable at slightly elevated levels making the path slightly bumpy for equity markets. Their charts look strong, especially on the longer timeframe. On the shorter timeframe both the QQQ and SPY are weathering digestion for now with shallow pullback. The IWM is looking strong as it is unwilling to yield any ground that it has gained since the September low. Use this information as you prepare for the coming week and trad’em well.

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